Founder's Trading Journal Morning Notes – 5/25/2022 May 25, 2022 AF Thornton 0 Comment Good Morning:Futures rallied as high as 3969 overnight before rolling over when Europe opened.Volatility estimates remain high, with another 100 point range projected around the open today,Resistance is at 4000, with support at 3900. then 3877.As we push toward the Memorial Day holiday this weekend, expect liquidity to deteriorate from its already fragile state.This will continue to invoke 2-way volatility.Allow for both rallies and declines to extend as Dealers buy and sell into them counterintuitively – forced by the negative gamma.Traders will also be watching for the 2 pm ET release of the Fed Minutes from the last meeting. I expect the minutes to be hawkish as hell, and so should traders. Jawboning appears to be the Fed’s primary strategy at the moment.Longer-term Treasury bonds (e.g., TLT) look poised to reverse the downtrend higher from a volatility squeeze.Other Fed rate increase forecasting measures (e.g. Fed Swaps) seem to be backing off draconian rate hike forecasts a bit, with economic growth deteriorating and global tensions high.So, long-term government bonds could be reversing their downtrend for the wrong reasons.If the reversal reflects a flight to quality, stocks may not follow treasuries higher.Option positions continue to accumulate at the 3900 strike. This accumulation can serve to make 3900 a more robust support level.Contrast this behavior with the past few weeks, when traders bought mostly puts at strikes less than 4000, and the market seemed to have extra velocity on moves under that level.This buildup of call positions at 3900 or greater (albeit light and just starting), plus the appearance of Dealers shifting to buyers at less than 3700, leads me to discount the risk of the capitulation Wall Street keeps expecting.Yes, we could have strong moves lower, and I still give an edge for markets probing lower into June expiration.However, the idea of a “limit down with VIX greater than 40 capitulation” seems less and less likely as the street is well-hedged from an options perspective.Options positions are not the end-all, but they can represent a live model of Wall Street’s current positioning.To the upside, an extended rally is unlikely until we get clarity from the Fed and/or a further buildup of call positions.In short, the market remains tentative, and our intermediate and long-term models stay in cash, awaiting an algorithm buy trigger.The Founders Group will begin accumulating September monthly calls in the TLT today to position for a rally in longer duration treasuries.We also continue to day trade futures, but as yet, there is no solid buy signal from the Navigator Algorithms. They are, however, only a razor’s edge from the buy.As they say, however, close only counts in horseshoes and hand grenades.The street is still very short, and it would not take much to send that group running for cover, perhaps after the Fed minutes are released today.Durable goods orders came in less than consensus this morning. Remember, the bad news is good news, as it takes the pressure off rate increases.Stay tuned,A.F. Thornton
Founder's Trading Journal Morning Notes – 5/24/2022 May 24, 2022 AF Thornton 0 Comment Good Morning: The market was still a bit tentative yesterday and appears to be on its heels again this morning due to disappointing forward guidance by social media company Snapchat. Today we see resistance in the 4115(SPY 400 equivalent) – 4000 area. Support is at 3900, and then 3960 (SPY 385). We are still on alert that yesterday and Friday’s action still reflects short covering. We need to see some solid follow-through above 4000 to be convinced of a true, intermediate low. Let’s see what the rest of the day brings, but our guard is still up for now. Capital preservation is still the rule of the day. A.F. Thornton
Founder's Trading Journal Morning Notes – 5/23/2022 May 23, 2022 AF Thornton 0 Comment Good Morning:I will publish the weekly report later today. After a week away from the screens, I had to catch up over the weekend.This week is not much better, as I have a time commitment to help a friend right some legal wrongs. Once a lawyer, always a lawyer, as the saying goes.But the bottom line is that Friday’s retest of the 5/12 low was successful, but the leprechauns still managed to stop me out of my calls for a loss Friday, my first loss of the year.I like the adage, how could I be so right and still lose money? But it happens – especially when I am not in front of my screens.The formal buy signal comes if we close above the Navigator Algo trigger today. On Friday, the market closed on (but not above) the trigger. I call that a wobbler, and I don’t take wobbler signals in this environment.Watch for a True Gap at the Open and apply Gap Rules. I would also apply Spike Rules, given the quick short-covering burst at the Friday close.I am confident in calling an intermediate-style low on Friday, but the wild card is the Fed. The Fed has jawboned every rally attempt. The Fed has decided to use the stock market decline to tamp down inflation as they used advances to rescue the economy in the past.So there is your wild card, making the market treacherous at best.Subscribers will get the buy signal if it manifests today.I am looking for solid resistance at 4000, with support at 3900, then 3875, and then 3800.The Put Wall has moved down to 3700, with the Volatility Trigger (and positive gamma) up at 4350.Volatility remains high, though this week’s WEM range drops down to just under 200 points. So the WEM high comes in at SPX 4000 (SPY 400), with the low at about SPX 3800 (SPY 379).And we are still in negative gamma, meaning dealers have to sell into declines and buy into rallies, making the moves longer and more volatile.Good luck today,A.F. Thornton
Founder's Trading Journal Morning Notes – 5/20/2022 May 20, 2022 AF Thornton 0 Comment This is a chart of the S&P 500 Index Futures with a Navigator Swing Buy Signal Forming Good Morning:It has not been easy to focus this week as I lay my mother to rest.Knowing that she died from vaccine complications is an even harder pill to swallow.But the hardest pill to swallow, as both a son and patriotic American, is that the Biden regime is about to cede our health sovereignty over to the World Health Organization, the very corrupt fraudsters controlled by the Chinese Communist Party who lied through their teeth to us and screwed up the Covid-19 Pandemic.The bribes paid to the Biden Crime Family by the Chinese Communist Party and others seem to be paying off, don’t they?Ukraine is now $40 billion better off for it.Now the U.S. will cede its health sovereignty to a corrupt global government. The WHO is part of the same United Nations crowd that hates the United States of America. They are avowed leftists and communists.You can learn more here and here.We are losing our country and rights so fast it makes your head spin. We better wake up, or it will be too late. We all need to contact our representatives in Congress and protest this outrageous move toward World Government.November elections? Please don’t count on them. At this point, the national elections seem just as rigged as the big city Democrat machine elections. And the left may find reasons to cancel or alter the elections like they did with Covid-19. Monkey Virus, anyone?Did you ever think you could see our nation virtually collapse in less than 15 months?Yes, they are reprogramming gas pumps around the country for $10.00 per gallon gas. Apparently, many of the pumps only go to $9.99.The left will never relinquish power now that they successfully stole it. Be prepared.If you want to know how they stole the election – start with the new documentaries “2000 Mules” and “Rigged.”As to the stock market, I have not been glued to my screens this week. But the Founder’s Group scaled into some July SPY and QQQ monthly calls over the past few days.We did not announce these trades to subscribers as I did not feel my usual confidence level when I am in front of all my screens. But another Navigator swing buy signal is painting, depending on how the market closes today.The swing buy requires a successful retest of the May 12th low, which is underway.I will let subscribers know if the signal will move forward by the end of the day. Consider a subscription as it more than pays for itself. As with recent signals, the idea is to get to break even as fast as possible and then move the stops up with the swing to lock in a profit.Futures are higher to 3940 ahead of today’s monthly expiration. Volatility estimates continue to hold at 1.2% (open/close), and we anticipate this changing for Monday due to the roll-off of put positions. Resistance is at SPX 4000-4015 (SPY 400). Support shows at 3950 and 3900.A market push to 4000 SPX (SPY 400) and 300 QQQ likely relieves any monthly expiration pressure – and the moves could happen today into Monday.If the market tags these respective targets, that likely withdraws any significant options-based support for the indexes.Price action at or below 3800 should produce buying from dealers, but this level shifts to 3700 after expiration.This general trend of traders uninterested in calls and systematically rolling puts “down & out” suggests an acceptance of (and positioning for) lower stock prices.Watch for a True Gap open and apply Gap Rules if the gap occurs. At this writing, the market is still inside the top of yesterday’s range.Have a pleasant weekend – summer is almost upon us.A.F. Thornton
Founder's Trading Journal Morning Notes – 5/18/2022 May 19, 2022 AF Thornton 0 Comment S&P 500 Index Futures - Bear Channel and Support Good Morning:If you were a subscriber this morning, it would be a good morning as we were in cash yesterday.As I indicated on Monday, I am in the throws of the death of my mother, memorials, and funeral arrangements – so I have been distracted. But I am not sure I would have expected such a severe reversal yesterday.The rising wedge on the hourly charts I mentioned yesterday morning did call for some profit-taking – but not a complete retest.It was many years ago that I read all the books one would read before pursuing the dream of trading for a living. And the books definitely need improvement, which is why I am working on my own.Chief among my complaints in the existing literature is this: the books never discuss the principle that “When What Should Happen Doesn’t,” or WWSHD as we call it, is a setup in and of itself. I believe that I first heard the phrase from Peter Reznicek, who incidentally has one of the best trading websites around.What they don’t teach in the books is that if the particular setup fails, the failure in and of itself may be a signal that something in the opposite direction is afoot.Coming into yesterday’s session, I had several observations. I postured that the options market would be providing some Vanna tailwinds into Friday’s monthly expiration. There was a Head and Shoulders reversal pattern on the hourly charts. While I have seen steeper patterns, it was a sign that a “V” reversal may have been underway.What a “V” reversal means to a professional is that the low in place may not need to be retested. Normally, one would not plunge back into the market on a new 52-week low such as occurred in the market a week ago today on 5/12. Instead, you would wait a week to make sure the low is secure.But the low from last week did appear to be secure when a follow-through day was successfully presented on Tuesday to confirm the pattern. As you will recall, our swing trader subscribers scalped about 40 S&P 500 points before being stopped out on that day.The bottom line is that yesterday’s steep reversal was unexpected – at least I didn’t expect it.Yes, Walmart, Target, and now Cisco (after the bell yesterday) all gave dismal forward guidance in the past 48 hours. The stocks were decimated. But I don’t understand the surprise. Anyone with half a brain should have expected as much – but apparently the street was caught off-guard.We will never know if the current retest of last Thursday’s low was in the cards anyway, or is the result of the news. In any event, we have a retest today – exactly five trading days after the low – which is exactly when one would expect the retest to occur.Either the retest will be successful, and my best guess is that it will, or we will have a genuine “3” count crash leg underway.A crash is a low probability event, typically reserved for the September/October time frame, but anything is possible in a bubble. But the probabilities are low at this particular time of year and I don’t want to ignore the fact that the S&P 500 is already down 20% from its January peak.There typically is a recovery leg about now that would at least take us back up to the 21 or 50-day lines if past bear markets are any guide. Also, bearish sentiment can hardly move lower, and the institutions are sitting on a lot of cash. It would not take much of a match to lite up some FOMO – especially if the retest is successful. Interest rates have been backing off this week, which could be helpful on a retest. Tomorrow’s monthly options expiration does complicate my predictions a bit. Overall, I still believe that the expiration will provide tailwind support at least back to S&P 500 4000. But that could occur from a much lower level than the 5/12 low. The market always bounces at least once off the former low and that has happened overnight. It makes a lot of sense to wait this out and see where this market is early next week. It will be a rough ride this morning, and I will not be married to my computers as usual, but it seems silly to be selling or shorting into this much bearish sentiment. You would be betting on a crash which must be studiously managed tick by tick not to get slaughtered in a rip-your-face-off short-covering rally. Bottom-line – cash is king and I have no confident predictions. My best advice is to see where this market is next week. Gap rules could be in play – monitor the open just in case. Also note that SPX 3925 is the WEM low this week and we are on it this morning. So Dealers and Market Makers will be defending 3925 this morning, A.F. Thornton
Founder's Trading Journal Morning Notes – 5/18/2022 May 18, 2022 AF Thornton 0 Comment This is a chart of the open interest and Gamma on the S&P 500 Index Options Good Morning:Futures are down slightly this morning to 4055 ahead of the 9AM ET monthly VIX expiration.Our volatility forecast for the day remains in line with recent estimates – about 50 points plus or minus the open.Resistance comes in today at 4100 SPX then 4115 (410 SPY). Support starts at 4060 (SPY 405) then 4000.As is evident from the chart above, 4000 remains the key strike ahead of Friday’s monthly expiration and pinning around that level remains a high possibility. But the question remains – where is this market, and should we continue to wade in after being stopped out with a nice profit yesterday?The theory behind investor sentiment is that when sentiment is overly negative, the selling is close to complete, and there will be mostly buyers left.Retail investors are usually overly net short the market by this time. A short-covering rally typically starts the ball rolling north again.Then, as the market recovers, FOMO kicks the rally into high gear as the institutions join the fray.Of course, these are bull market tactics, and they have served me well over the years.The market is experiencing extreme bearishness lately, with the CNN Fear and Greed Index as low as eight last week.With this in mind, the Founders Group took the Navigator Swing Strategy to a 90% invested position in SPY calls Monday at 4019.75. We had managed to move our stop up to 4065.25 yesterday before getting stopped out in the volatility that followed Fed Chairman Powell’s speech.There is also a rising wedge pattern on the hourly S&P 500 index chart, which needs to resolve before we reenter. And there is formidable overhead resistance, though a positive reversal pattern may indicate that the market may be able to labor through some of the resistance. (See yesterday’s Morning Notes).But the question remains, is bearish sentiment a reliable contra-indicator in the current market environment?My biggest concern right now is the shortage in diesel fuel, which is about to grip the northeast. Both Pilot and Love’s travel stops are warning truckers of potential rationing.We have shipped a lot of our diesel fuel to Europe to help them through their crisis. This creates shortages on the East Coast. Now, the West Coast will try to help the East Coast and the shortage will spread west.Nearly everything in our Country is transported with diesel fuel. Trains, trucks, you name it. Even gasoline has to be transported in trucks that use diesel fuel.I was laughing to myself this morning. In my heyday, I had a 70-ft Yacht. When I bought it, diesel fuel was .065 cents a gallon (this was around 2005). The vessel held 3,000 gallons.Granted, it was expensive, but I could still use my Amex card to fill it up for less than $2,000. Can you imagine now? it would cost $19,000 to fill. And with boats, you measure fuel used by the hour – not mile.The point is that this diesel shortage is a very serious threat to the economy, and will be making headlines soon. Rationing will elevate concerns. If you are thinking of ordering anything to be delivered by UPS or FedEx, the sooner you order the better.Yesterday, Bank of England chief Andrew Bailey issued an ‘apocalyptic’ warning about food prices and admits he is ‘helpless’ to do anything about inflation… while urging Britons NOT to ask for pay raises.My point in raising these issues is that while Wall Street’s mood may be apocalyptic, it is well-justified.In a bull market, bullish sentiment can remain elevated for long periods. Though we don’t get as much practice at bear markets, bearish sentiment can remain elevated for long periods in a bear.So our best strategy for the foreseeable future is to scalp gains wherever and whenever possible. Bearish sentiment is helpful, but it is not the same, reliable indicator that it was in the raging bull market.Batten down the hatches and stock up. You will be glad you did.A.F. Thornton
Founder's Trading Journal Morning Notes – 5/17/2022 May 17, 2022 AF Thornton 0 Comment An Interesting Chart from Bank of America - What if we are still in a secular Bull Market? Good morning:Lack of follow-through marred the latest rally attempt yesterday, though it looks better this morning with a 1% overnight move higher putting Gap Rules into play this morning.As always, use the Gap fill/no-fill as your first sentiment barometer.Resistance is at 4095 followed by 4115 (SPY 410). Support shows at 4015 (SPY 400).There is no obvious catalyst for the overnight recovery. This setup feels a lot like that of late April, when the market (also net short) launched higher into VIX monthly expiration (tomorrow morning) and carried into a sizable April monthly expiration on the following Friday. Back then, markets rallied on Tuesday and Wednesday, pinned on Thursday, and sharply reverted all their gains on expiration Friday.Until proven otherwise, this move up should be seen as a short covering rally. It could extend into Friday, but it may be subject to quick and violent reversals. Subscribers will continue to receive signals to move their stops up with the rally.Our swing model subscribers are in a buy signal at 4019.75. We will move our stop up to 4033.25 this morning just to ensure a profit. Consider a $99 monthly subscription as these subscribers are enjoying a phenomenal year – our initial $10,000 starting balance is now just below $50,000.The main obstacle to a sustained rally is to conquer former support around 4100 – 4150 – now resistance. And we need to see real, institutional buying not merely short covering.A reversal pattern on the 24-hour charts indicates a measured move as high as 4200. And though I don’t expect new highs, I believe that the market could recover up to 4300 before it stalls out again. This chart shows a Head and Shoulders Reversal Pattern on the 24-Hour Data Hourly Chart For now, the first target is the 21-day line or mean at 4150 or so.Use this rally to cull your portfolio holdings – this bear is not over. You cannot go wrong if you are selective. Quality rules in these kinds of environments. Hard assets and real earnings are especially valued now.As mentioned yesterday, the street is net short (also in short-dated options) expiring at monthly/weekly expiration on Friday, so Vanna flows should provide positive tailwinds this week.All of this is part of bottoming the 80-day cycle – which is due to bottom between now and early June. If all goes according to plan, the next phase of the bear will start in late summer into the usual September/October seasonal weakness and 40-week cycle trough.We get retail sales and industrial production numbers this morning which will give us some additional insight into the current quarter’s GDP. Existing home sales come out later this week.We also have some of the big retailers reporting to wrap up 1st quarter earnings this week.By Friday, we should have a good idea of how strong or weak the economy has become. Bad is good right now, as it takes the pressure off rate increases. 10-year rates seem contained at the 3% resistance level for now.Geopolitics continues to be a wildcard – but do not forget that a rally catalyst would ensue if Russia does back off its aggression.Let us see where this movie from the depths of market despair takes us. There is no lack of positive and negative opinions relating to the matter – that is for sure. Click to Learn More About Navigator™ Trading Subscriptions Share with Friends and FamilyWord of mouth is crucial for growing our trading community and providing education and support for your trading decisions. Please feel free to share this with your friends and family if you find the information beneficial. Facebook Twitter Email LinkedIn
Founder's Trading Journal Morning Notes – 5/16/2022 May 16, 2022 AF Thornton 0 Comment Good Morning: I will be delivering the “lite” version of my commentary this week, as I am losing my mother to the vaccine and will be indisposed while making funeral arrangements and attending memorial services. Hauntingly, it was exactly a year ago (May 22nd) that I lost my father-in-law to the vaccine. The people and companies behind these vaccines are nothing short of evil. People used to think I was nuts when I questioned the vaccines, now it is all coming out how bad they are and how the side effects were covered up. My mother got the China virus twice after she had her vaccines. Now we learn that Fauci and the rest of the NIH crew were getting $350 million in secret royalties to promote them. Last Thursday’s intraday low looks like a tradable pivot from oversold levels, crowned with a short-covering rally into Friday’s close. We have a Navigator Swing buy signal on Friday’s close, but since it hung by a thread, I don’t want to issue the signal without follow-through today into the close. Otherwise, this is likely to be another brief short-covering rally that could be a bull trap. Nothing else has materially changed, other than the fact that China’s economy appears to be collapsing under the weight of their lockdowns, and the collapse is sure to have an impact on the global economic outlook as well. 4000 is still the key pivot line until expiration on Friday. Resistance remains at 4100, with support at 3950, then 3921. There should be some support from the options market into Friday’s monthly expiration, with 4000 acting as a pinning or mean-reversion level. So the recent lows should hold, absent further “unknown” negative news. A.F. Thornton
Founder's Trading Journal Morning Notes – 5/13/2022 May 13, 2022 AF Thornton 0 Comment Good Morning:Some relief is in order this morning, as market makers appear to be drawing the S&P 500 back to the WEM low around 3985.The bond market, leading the rout in stocks, bottomed Monday and started climbing out of its hole.There could be a short squeeze into the close today before the weekend.I might show up for that, but otherwise, with the open interest around the 4000 strike, I would expect the market to pin around that number today, which is why I rarely trade Friday expiration.The real action promises to be when the monthly expiration arrives a week from today.I have to believe that everything known is already priced into the stock market – and what is known is unpleasant for stocks.What worries me is what is not known. For example, the CryptoCurrency class is having its meltdown – as I knew it ultimately would. What else is hiding under the rocks with all the global currency turbulence?I will probably sit out today. A lot of the drawback to the WEM low has already manifested overnight.Look for support at 3975, then 3920. Resistance is at 4000, then 4020.The market is oversold, and a bounce is overdue. But it is a bear market nonetheless.It would be best to use rallies to cull your holdings down to the bare minimum that you are willing to hold through further and deeper declines into the fall (no pun intended).Make sure you are serious about holding, as you don’t want to change your mind and sell at the bottom.Have a great weekend.A.F. Thornton
Founder's Trading Journal Morning Notes – 5/12/2022 May 12, 2022 AF Thornton 0 Comment This is a Weekly Chart of the S&P 500 Index Futures showing support and resistance. Good Morning: I don’t mention it every day, but the Navigator Swing Strategy remains in cash with an extraordinary year-to-date return. We are at that stage where a capitulation or waterfall low is likely to end this first bear phase, and I would prefer we enter either during or after that phase is complete. There are respectable arguments on both sides of the market. Some believe that this market is ripe for a 1929 type of crash. Even I could argue for a top to bottom 75% decline if the market were to tag its 100-year channel bottom. Nevertheless, I will vote for the middle ground. It amazes me that I have not had to tweak our Market Thesis since I first published it in January. The market has made the measured move for a “correction” at current levels. And perhaps the WEM at 3985 can draw prices back up before tomorrow’s weekly expiration. Going lower beyond current levels (the market is at 3896 at this writing) would find support clusters around 3750 and 3500. I know those levels run deep, but they are what they are. At 3500, we are still well above our ultimate target of 2500, where I would expect the bear to end. But I am unaware of any “May” stock market crashes in history. They usually arrive in October. And given where we are and the literal washout in negative sentiment, I am still viewing this decline as phase one, with some relief due at any moment. The street is mega-short, and I doubt the crowd will be correct. Lopsided positioning such as this is ordinarily unsustainable. Yet I still ponder what will rise from the depths of hell to more downside. I suspect that a currency issue is in the offing. We have already discussed the crashing Japanese Yen, but this has also put pressure on the Chinese Yuan. Yesterday, even Hong Kong started tweaking its local currency. Treasuries started to find some footing yesterday, and that may be the first indication that a short-term bottom is close at hand – unless it is a flight to safety. There is considerable chart resistance to the 10-year rising above 3.2%. The good news is that I don’t care what has happened or even what will happen, as my focus is today and what is in my windshield. I know a bottom when I see it, and I will communicate it to subscribers in real-time. And by the way, China is in deep, profound economic trouble between lockdowns and its imploding real estate market. They were in a financial crisis long before Russia invaded Ukraine. Another sign that a low may be close is the market taking the generals out to the woodshed. Mighty Apple is the latest (and perhaps the last) to take the fall. I am fortunate to have an extraordinary partner in this endeavor. Michael is nothing short of a software genius and problem solver. We started this endeavor to manage our family funds. On Monday, we discussed how vital patience is in this and most endeavors. Right now, we need to be patient and wait for our moment, especially from an intermediate perspective. We are day trading with subscribers, so there are benefits to the volatility if you know what you are doing. But taking a longer-term position is not advisable until that moment arrives when the crowd caves. We await that moment. So let’s find a tradable bottom. This market is in capitulation territory. I am looking for resistance today at 3900, then 4000. Support is at 3865. We are so deep into put territory that negative Gamma will start to decrease at 3800.Gap Rules are applicable this morning. Use the fill/no-fill as your first clue to directional bias. Stay tuned – we are here to help in any way we can. A.F. Thornton